By Ibrahim Kasita

A revised stability clause that allows re-negotiations when Uganda enacts new laws or policies that could reduce the oil investors’ profits has been adopted in the draft production sharing agreement, a compromise that could unlock the $2.9b oil deal deadlock.

For the last 20 months, Uganda has been locked in negotiations with Tullow and partners, France’s TOTAL and China’s National Offshore Oil Corporation (CNOOC) over stability, royalty, fiscal and crude oil value-addition clauses before final sale contract is sealed.

This was after Tullow agreed to pay over $400m capital gains taxes the Government demanded after it acquired Heritage’s interest in Uganda. Tullow wants to offload over 66% of its shares in Blocks 1, 2 and 3A.

In March 2011, a temporary agreement was signed between the Government and Tullow to continue appraisal work, pending the endorsement of a new production sharing agreement that was expected in September.

But this has not yet happened because the parties have not agreed on the stability clause.

Whereas the investors want the stability clause in the new production sharing agreement to protect their investments against legal and regulatory risks, Uganda wants it scrapped as it is in the process of making new laws to govern the oil industry.

The new draft laws are the Petroleum resource management and the Petroleum revenue management Bills. Uganda also wants the stability clauses that will capture the oil windfalls due to changing economic, financial and legal environments.

But sources said an amended draft agreement submitted to the President for consent had revised stabilisation clauses.

The newly drafted stability clause, according to sources, states that when there is a change of policy or law that reduces economic gain of the investor/s, the parties will renegotiate and ensure that the investor’s profits revert to the level they were before the policy change took effect.

“We expect the President will approve this new version. The parties are not against benefiting from the oil windfalls by increasing taxes or any fiscal regimes. But the parties must sit and renegotiate so that the investor’s profits do not reduce,” the source said.

All hopes are that the President approves the deal. Tullow and partners have been complaining that the delay in approving the deal was affecting their budget operations.

Tullow says it has invested close to $1b in exploration and appraisal operations in Uganda and its shareholders want return on investments. Any delay is not good for the investors.

But for Uganda, it is an opportunity to correct what went wrong and put in place proper fiscal, legal and regulatory framework for the future of the industry.